Focus on the honeymoon when preparing to sell your firm

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Focus on the honeymoon when preparing to sell your firm

M&A activity in the UK advice market remains ultra-competitive.

We speak to firms that get several calls a week from interested parties looking to make or broker a deal with them. It can be a long way from that call to a deal being agreed and no matter how hard both parties work to cover all the bases, what feels like a good match can turn sour if some of the important intangibles are not considered.

Too often, the focus of the discovery process and negotiation is on getting the deal done, rather on what happens next.

Based on our annual study of more than 700 advisory firms from around the world, and the many conversations we have with people on both sides of the transaction, here are five things that are often not considered in enough detail when a deal is being negotiated:

Cultural fit, how will the two organisations sync?

Every newlywed hopes their parents and siblings will get on with their new in-laws, but usually this is left to chance chemistry.

Bringing two organisations together is also complex and loaded with downside risk. If the two sides do not share a common goal, not only will the immediate transition risk derailment, but it might also take years to overcome differences, if ever.

Among the considerations are: are the client propositions compatible, is the advice process in line, are the business priorities compatible? For example, is one firm focused on long-term financial planning and the other more on tactical advice? If there are differences, are they reconcilable? Can a compromise be made that both parties and their stakeholders can live with?

Investment philosophy.

Some firms believe the earth is round, others maintain it is flat. Some firms don’t care, as long as clients are happy with performance.

However you view the world, we find that many successful firms have a definitive, documented investment philosophy that is consistently applied across clients’ assets.

Bringing two firms together with distinct philosophies can be hard unless there is agreement on how to adapt or incorporate different ideas.

In addition to the fundamental market beliefs and how they are applied, consideration should be given to how focused on investment philosophy and strategy each firm is, how this influences the way the firm is run, and its clients’ expectations.

For example, a firm that values lifestyle planning and one that specialises in tactical investment advice will each have clients that value different things.

The transition timetable.

The pace at which any new relationship develops must suit both parties. One cannot rush the other, or drag its heels.

Unexplained or unexpected differences in timing expectations can be misinterpreted. The key components of integration will have been considered when the deal is struck, such as how people and processes gel. The missing component in these conversations is often expectations of timing.

As the acquirer, you may be keen to crack on and sense resistance from the outgoing leadership of the acquired firm. Or there may be more fundamental disagreement on how to prioritise the phases of the transition. Ironing out these wrinkles early is helpful.

The clients’ experience.

Clients are the lifeline of any financial planning business and those that are folded into your firm may feel anxious about a change of ownership. Matching, if not exceeding their expectations is crucial to the success of the transaction.

Because satisfaction is a subjective judgement, you need to understand the key elements of the service proposition they are familiar with and which parts they value most. Only then can you hope to provide a smooth transition for them.

Employees’ experience.

It is equally important to understand how the team you are acquiring works, how to capitalise on its experience and how to maintain and improve their productivity. They may share some of their clients’ anxieties about the transition of ownership and honest communication with them about expectations will help overcome them.

There is plenty of fanfare when a deal is agreed, but very little is ever said about how well the honeymoon goes and how the couple makes it to their first anniversary.

In the experience of many acquirers around the world, paying attention to these five considerations can make a significant difference to the long-term success of the transaction.

Martyn Chappell is head of UK wealth management at Dimensional Fund Advisors